This is that time of the year (albeit, a bit delayed due to the pandemic) where we start getting a flurry of texts, mails and all other sorts of reminders to file our income tax returns for FY 2019-20. The deadline for the same currently stands at Dec 31, 2020 for individual taxpayers.
While this is the tax-filing season, we also need to keep an eye on tax saving for FY 2020-21. The end of FY 2020-21 is fast approaching – just four full months to go (how time flies..!)
If you haven’t invested in a tax-saving ELSS (Equity Linked Savings Scheme) yet, then you might want to consider getting it done now rather than push it to the last minute.
Now, allow us to help you do that by revisiting the two ELSS funds that we like.
Fund 1 – Axis Long Term Equity Fund – A solid long term performer with a ‘Quality’ first approach
- Positioned to play the ‘Quality’ style of investing
- Fund manager with long term track record – 19 years of experience in capital markets (9 years as a equity fund manager)
- Consistent long term performer across market cycles – 6.8% CAGR outperformance over the Nifty 500 TRI since inception (29 Dec 2009) + 100% of the times outperformed the benchmark in all 5 year periods with an average outperformance of 6.9%
- Robust Risk Management – lower declines across all periods of major market falls
- Fund Manager – Jinesh Gopani, Head (Equity), Axis Mutual Fund
- Fund Launch – 29 Dec 2009 (10+ year track record)
- AUM – INR 23,758 Crores
- Market Cap Allocation – 83% Large cap / 13% Mid cap / 2% Small cap / 2% Others
Quality First Investment Approach with a concentrated portfolio…
- Quality First Investment style – Quality + Growth i.e Quality businesses with long term earnings growth prospects – ready to pay higher valuations for quality and growth
- Concentrated portfolio with 30-35 stocks
- ‘Across Market Cap’ approach with large cap bias – 83% in large caps
- Buy & Hold Strategy – ~60% of the stocks in current portfolio were also part of the portfolio from five years ago
Backed by an experienced fund manager Jinesh Gopani…
The fund is managed by Jinesh Gopani who also heads the equities division of Axis Mutual Fund. Jinesh has been managing this fund close to a decade. He has over 19 years of experience in the financial markets including 9+ years experience as equity fund manager.
Consistent Long Term Performer…
Axis Long Term Equity Fund has outperformed Nifty 500 Total Return Index by around 6% CAGR in the long term (10Y) as on 06-Nov-2020.
The fund has been a consistent outperformer against the index across all market cycles since inception.
The fund has outperformed the index, 100% of the times on a 5 year rolling return basis and 86% of the times on a 3 year rolling return basis. On a 3-year rolling basis, Axis Long Term Equity Fund has given 2% higher returns than Nifty 500 TRI in 77% of the instances. On a 5-year basis, the number goes up to 92% of the instances.
With robust risk management indicated via lower declines…
Axis Long Term Equity Fund has also performed well during the times of market downfall. The fund has a downside capture ratio of just 69% since its launch i.e. whenever the markets have fallen the fund has on average captured only around 69% of the fall. The downside capture ratio indicates the ability of the fund to limit its losses when the markets have fallen. A value less than 100% shows that the fund’s returns have fallen lesser than the index returns.
Another way to check this is to look at how the fund performed during all major declines of the past. As seen below, Axis Long Term Equity Fund has fallen much lower than the Nifty 500 TRI during all the major market declines.
During the intra-year market declines too, the fund has managed to fall lesser than the benchmark in all years except for one.
Fund 2 – Mirae Asset Tax Saver Fund – A consistent performer with a ‘Growth-at-Reasonable-Price’ approach
- Invests in strong growth companies at reasonable price
- Fund manager with long term track record – 25 years of experience in financial services (12 years as fund manager)
- Consistent performer – 5.9% CAGR outperformance over the Nifty 500 TRI since inception (28 Dec 2015) + 100% of the times outperformed the benchmark in all 3 year periods with an average outperformance of 4.5%
- Good Risk Management – indicated by the fund’s ability to capture less of the downside
- Fund Manager – Neelesh Surana, CIO, Mirae Asset Mutual Fund
- Fund Launch – 28 Dec 2015 (~5 year track record)
- AUM – INR 4,703 Crores
- Market Cap Allocation – 68% Large cap / 22% Mid cap / 6% Small cap / 4% Others
Diversified approach with preference for growth companies but a reasonable price…
- Growth at Reasonable Price
- Diversified portfolio with ~ 60 stocks
- ‘Across Market Cap’ approach with large cap bias – 68% in large caps
Backed by an experienced fund manager Neelesh Surana…
Mirae Asset Tax Saver Fund is managed since its launch by Neelesh Surana, who is also the Chief Information Officer of Mirae Asset AMC. Neelesh has over 25 years of experience in financial services including 12+ years in fund management.
Mirae Asset Tax Saver Fund has been able to outperform Nifty 500 Total Return Index by 5.9% since its inception (28-Dec-15).
On a 3-year rolling basis, Mirae Asset Tax Saver Fund has beaten Nifty 500 TRI consistently. The fund has managed to outperform the index by at least 2%, 100% of the times. Further, 90% of the times the fund has outperformed by more than 3%!
As Mirae Asset Tax Saver Fund has been in existence for only about 5 years, we can get a sense of the performance consistency by analysing another large cap oriented fund which was managed by Neelesh Surana for more than a decade – Mirae Asset Large Cap Fund.
During Neelesh Surana’s tenure (May-2008 to Dec-2019), Mirae Asset Large Cap fund has been able to beat Nifty 500 TRI by at least 2% in all 5-year periods. Such a long track record strengthens our conviction in Mirae Asset Tax Saver Fund.
With good risk management as evident from lower declines…
Mirae Asset Tax Saver Fund has a downside capture ratio of 93% since its launch. This shows that the fund managed to lose less than Nifty 500 TRI during the declines.
When it comes to intra-year market declines, the fund has fallen lesser than the benchmark index.
So, how to select between these two funds?
Simple Answer – Why not have both!
Let us see how a “Combo” strategy with 50-50 allocation to each of Axis Long Term Equity Fund and Mirae Asset Tax Saver Fund will work.
The Combo strategy has delivered an outperformance of 3.6% since Mirae Asset Tax Saver Fund’s launch.
On a 3Y rolling return basis, this strategy has beaten the Nifty 500 TRI 100% of the times. In fact, 96% of the times the strategy outperformed by more than 2% on a 3-year rolling basis.
Low Overlap ensures diversification – the portfolio of these two funds overlap by only around 27%. Thus, the “Combo” strategy could provide broader diversification as well.
Who should invest?
- Both Axis Long Term Equity Fund and Mirae Asset Tax Saver Fund are suitable for investors looking to save tax and looking to take equity exposure as a part of their long term asset allocation
- Investment horizon of at least 5 years (anyway, there is a lock-in period of 3 years)
Summing it up
- Axis Long Term Equity Fund follows a focused strategy with quality bias while Mirae Asset Tax Saver Fund invests in growing businesses with reasonable valuations
- Both these ELSS funds are managed by experienced fund managers with proven track record.
- Both have been consistent outperformers versus Nifty 500 TRI and have had much lower declines compared to benchmark
- “Combo” strategy has given at least 2% higher returns than the index – 96% of the times!